My clients often ask me if their utilities will be cut off after unpaid bills to these companies are discharged in bankruptcy. For most of us, loss of electricity and water services would be devastating. This issue is addressed in section 366 of the Bankruptcy Code. Utilities “may not alter, refuse, or discontinue service to, or discriminate against” a debtor because they filed for bankruptcy, even if the debtor has discharged debts owed to the utility. But a utility may require that a debtor provide adequate assurance of payment in the form of a security deposit.
It is important to determine what exactly qualifies as a utility when applying section 366. The Bankruptcy Code does not define “utility.” However, the Fifth Circuit ruling in Darby v. Time Warner Cable, Inc. (In re Darby) provides an explanation of what is meant by utility for the purpose of applying section 366. 470 F.3d 573 (5th Cir. 2006). In Darby the court restricted the definition of “utility” to only providers whose services are “essential” and “necessary”. The court held that a cable company was not a utility and could discontinue service to a debtor who discharged its claim.
It is safe to say that the term utility can be applied to natural gas, water, sewage, and electricity. In my experience cable, satellite and internet providers are generally reasonable when dealing with debtors in bankruptcy. Most follow the rules set out in section 366, and continue to provide services after discharge if the debtor provides a reasonable security deposit.